Sun Sets On Western

Sports-programming costs, cable telephony and the specter of a satellite competitor with Rupert Murdoch at the helm were the main issues as the Western Show made its last ride into the sunset last week.

At the opening general session last Wednesday, a panel of cable executives set the tone, as they touted cable's technological advantage over direct-broadcast satellite while lamenting rising programming rates.

While it was one of the most star-studded opening sessions in years — Comcast Corp. CEO Brian Roberts, Cablevision Systems Corp. cable and communications division president Tom Rutledge, Time Warner Cable chairman and CEO Glenn Britt, Charter Communications Inc. CEO Carl Vogel and Adelphia Communications Corp., chairman and CEO Bill Schleyer were front and center — the 36th Western Cable Show went out with a whimper.

Despite the hype surrounding the final roundup, attendance at the show was down for the third straight year — the official tally from the California Cable and Telecommunications Association was 6,150 people, down from the 9,947 attendees last year. Attendance was 17,000 in 2001 and 33,000 in 2000.

The final Western Show was apparently also the swan song for CCTA president Spencer Kaitz.

Kaitz has about one year left on his current contract, but at the association's board of directors meeting Dec. 12, he proposed that he retire rather than restructure the trade group's staff with him in it.

The CCTA will have to make organizational changes to cope with the loss of revenue, now that the trade association has held its last show. Western Show revenues make up 40% of the CCTA's budget. Although executives said the group has a war chest that will allow it to continue its current activities in the short term, a new revenue and budget structure will be necessary.

Kaitz said it was either a case of negotiating members of the staff out, or taking himself out of the picture.

"I've been doing this for 31 years. It's time," he said. "The CCTA has always done things in a classy way. [The transition] will be one of them."

His retirement is contingent on the association's ability to negotiate a new contract with the group's current vice president and chief state lobbyist, Dennis Mangers. Mangers will become the new president.

The board of directors may finalize the new management at its annual retreat in January at Lake Tahoe, Calif.

Tech To Battle DBS

Unlike past Western Shows that were packed with controversy and announcements concerning systems sales and new channel launches, last week's show seemed to reflect the new state of the industry. With consolidation largely over, most operators are in what some executives have called the "boring execution stage," focusing on maintaining their existing subscriber base and rolling out new services.

Technology was at the top of most of the CEOs' minds, mainly because of a trip that most of them took to several Silicon Valley technology companies, such as Intel Corp., earlier in the week.

"If you look at the technology that is available to our business, it boggles the mind," Britt said. "The trick is to apply that to real, live products that our customers can use. It's real easy to get dreamy about what we could do 10 years from now. The trick is how to pace it."

Regarding News Corp.'s pending deal to acquire a controlling interest in DirecTV Inc. parent Hughes Electronics Corp., the CEOs said that while it will add a new wrinkle to the competitive landscape, cable is prepared to meet the challenge.

"I think it's going to mean a heightened level of competition," Vogel said. "It's probably going to mean more discussion about the strength of our video business. It's going to require all of us to make our video business stronger with video-on-demand, high-definition television and things that are difficult for DirecTV to deliver."

Vogel — who 10 years ago was president of EchoStar Communications Corp., the No. 2 DBS service provider — said that the competitive landscape is considerably different today. Ten years ago, DBS had the technological edge by delivering digital television.

"The cable industry has caught up to and passed that," Vogel said. "We have a lot of other things that I think will be good tools in the battle we fight against DirecTV and EchoStar."

Rutledge said that Murdoch's reputation as an excellent programmer and his success in building U.K satellite giant British Sky Broadcasting plc is enough to stress that he shouldn't be underestimated. However, he too believes that cable's triple play of voice, video and data is enough to compete effectively.

At Thursday's general session, Rogers Communications Inc. CEO Ted Rogers said it's critical for cable operators to take advantage of their lead now, especially when DBS subscriber growth is on the wane.

"We're in the middle of a five-year period where satellite penetration will peak, growth will stall," Rogers said. "In the next five years, telephone companies will upgrade their facilities to be able to compete with us in basic cable and tiered cable services. This is what we should be prepared for."

Canada's Rogers Communications offers a bundle of video, high-speed data and cellular telephone service. But Rogers said that 62% of his customers only take one product, with 30% taking two and 8% taking all three. Given that the 8% taking all three services account for 26% of its cash flow, and the 30% that take two services account for 43% of cash flow, Rogers said that his focus is on getting that 62% of subscribers to take the bundle.

"Our Achilles heel is that 62% only taking one service," Rogers said. "Our great hope is to take the group that is taking all three services to 30%."

Telephony was also a hot topic on Thursday's panel. With MSOs looking to make a run at local telcos by rolling out Internet-protocol telephony services, Rogers warned that cable must differentiate its telephony product, and not just attempt to compete on price. "If we try to emulate the phone companies, they'll come back and haunt us," Rogers added.

Sports Sensibilities

Programming costs were a hot button issue as usual, although one of the more controversial figures in that debate — Cox Communications Inc. CEO Jim Robbins — canceled his scheduled appearance on the Wednesday general session panel.

Still, the CEOs managed to get their shots in.

Britt, who in the past had called for high-cost sports programmers to be placed on tiers, appeared to back away slightly from that position.

"Most of our programming costs are pretty much under control," Britt said. "If you look at the economics of sports, the problem is at the network level and the team level. There is no control of underlying costs."

But Britt said that tiering would not be a "good outcome," although he added that it is inevitable unless programmers get their costs in line.

Schleyer joked that Adelphia solved the programming cost problem by declaring bankruptcy in June 2002.

But on a more serious note, Schleyer said that something must be done about high sports programming costs.

"This can't go on forever," Schleyer said. "I think it stops with negotiations between ourselves and the suppliers."

Roberts agreed that the programming cost issue must be solved internally rather than through government regulation. And he added there is a third alternative.

"The third choice is to do without," Roberts said, pointing to Cablevision's very public battle last year with the Yankees Entertainment & Sports Network, the regional sports network controlled by Major League Baseball's New York Yankees. YES Network currently is on a separate sports tier on Cablevision systems.

"Cablevision had the Yankees off for a year and lost 50,000 subscribers out of 3 million. That's why they got to a resolution," Roberts said.

Rocco's Ratio

At the general session on Thursday, Mediacom Communications Corp. chairman and CEO Rocco Commisso offered another alternative. He said that if 80% of his programmers agree not to raise prices next year, he will keep his rates to customers stable.

While the proposal was tongue-in-cheek — he said that programmers would have to call him in two weeks, because that's when his rate increase notifications are supposed to go out — it did spotlight what has been a problem for smaller operators for years.

While large MSOs like Comcast and Time Warner Cable enjoy some hefty volume discounts from programmers, Mediacom, which has about 1.6 million customers, often pays much more than its larger counterparts.

Commisso is not likely to be sitting by the phone. He made a similar proposal last year, pledging to freeze rates if 100% of his programmers did the same, and said he did not receive one call from a network.

Later, Commisso said that normally Mediacom implements its rate increases in February, and expected that this year the average rate increase would be about 5%.

Commisso called for a level playing field where all MSOs are charged the same rate for programming — a nice notion, but one that is fellow panelists did not believe was steeped in reality.

"There is some logic to his arguments, but this is a world of reality," Insight Communications Co. CEO Michael Willner said. "Volume discounts are going to be with us a long time."

Rogers' response was more terse.

"He [Commisso] means well," Rogers said. "Enough has been said on the subject."